Monsanto Earnings to Drive Ag ETF

NEW YORK ( TheStreet) -- Monsanto ( MON) has been sapping the strength of the Market Vectors Agribusiness ETF ( MOO) this year and did so again Monday, when it lost 0.6% on a day when MOO gained 0.4% and the S&P 500 advanced 0.8%.

Year to date, Monsanto has lost 13.6%. Because Monsanto still makes up a hefty 7.75% of assets in the MOO, the company's shares have dragged down the ETF, which has gained half as much as the S&P 500 this year (4% vs. 8%).

Monsanto plans to report earnings Wednesday, and the news should set the ETF's tone for the rest of the week.

In the previous two quarters, Monsanto earned 2 cents a share and then lost 2 cents share. Earnings estimates for the most recently completed quarter have come down almost 13% in the past three months, to $1.73 per share.

Analysts are more positive about the current quarter that ends in May and have raised estimates by about 15% over the past three months. Positive guidance will probably be needed to break this stock out of its funk, however, but some traders expect it, with options buyers being heavily bullish of late.

Monsanto is not enough to hold down MOO by itself, though, and it's had some help from the other top holdings. No. 1 holding Wilmar International ( WLMIF) has been mostly flat since autumn of last year, while Potash ( POT) and Syngenta ( SYT) are trading at the same levels as December. Last Thursday, Mosaic ( MOS) missed estimates for its third-quarter earnings and shares slid 4% on the day.

One has to dig down to No. 6 holding Deere ( DE) to find a stock with solid gains. Deere had gained slightly more than 10% through April 5.

As for MOO's other holdings, this year has seen the battle for Terra Industries ( TRA) brought to a conclusion, with CF Industries ( CF) victorious. Shares of CF are flat for the year, but Terra's stock rallied about 40%; each accounts for about 1.4% of MOO's portfolio.

The merger activity shows companies are bullish on their future prospects, but the market has been watching earnings and isn't impressed. Therefore, expect Monsanto's earnings and guidance to cast a spell -- good or bad -- over MOO this week.

If things don't go MOO's way this week, investors shouldn't abandon the fund, especially given its performance vs. other agricultural ETFs. MOO is positive for the year, compared with a negative 7% return from PowerShares DB Agriculture ( DBA). Strong output has pushed many agricultural prices lower, with the collapse in sugar being the most notable decline. iPath Sugar ETN ( SSG) has imploded and is down 37% this year and 27% in the past month.

Remember that there's regulatory risk from these commodity agriculture funds, as both the SEC and Commodity Futures Tradings Commission investigate the use of derivatives by ETFs.

Yet the agriculture story remains in place. Populations are growing, and the good weather that's led to bountiful harvests now won't last forever. Rising demand will eventually drive demand for fertilizer, seeds and, along with them, MOO. For long-term investors, a little short-term weakness is a buying opportunity.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion owned shares of MOO.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.